Why has UTAS issued a Green Bond rather than using TASCORP?

In my previous post, UTAS’ Green Bond rating raises major issues, I looked at some of the many questions surrounding UTAS’ Green Bond. In particular I focused on Moody’s credit rating assessment of UTAS, citing a number of errors and questionable statements by Moody’s.

In this post I want to focus on another issue – why has UTAS issued a Green Bond to borrow $350m rather than using the services of TASCORP, the Tasmanian Public Finance Corporation?

Before proceeding, however, I thought I should clarify a statement I made in my previous post:

“There is a major issue of who is responsible for the errors and other points of contention in Moody’s credit rating – is it Moody’s, UTAS, the Tasmanian Government, other parties or some combination thereof? Moody’s provides scant detail of its sources.“

What I really should have said is:

“Moody’s must be considered responsible for every word in its credit rating assessment, but there is a question of what the source was for the errors and other points of contention in that assessment. Was it Moody’s, UTAS, the Tasmanian Government, other parties or some combination thereof? Moody’s provides scant detail of its sources.“

This is an important clarification to make. Moody’s should have run a critical filter over everything it read, or which was said to it, in relation to UTAS. Credit rating agencies play a crucial role in markets, and it is vital that they get things right. Think 2008 and the Global Financial Crisis!

Moving on.

Why has UTAS issued a Green Bond rather than using TASCORP?

This is a real puzzle and as usual neither UTAS nor the Tasmanian Government have provided any transparency on the matter.

In the past UTAS has largely conducted its borrowings through TASCORP, one of whose prime functions is:

“to develop and implement borrowing and investment programmes for the benefit of participating authorities; and … to engage in such other activities relating to the finances of the Government of the State or participating authorities as are contemplated by this Act or approved by the Treasurer.” (Section 11(1)(a) of the Tasmanian Public Finance Corporation Act 1985)

TASCORP’s annual report for 2021-2022 indicates, perhaps, that it was little surprised that UTAS went down the direct market (Green Bond) route:

“Due to the Tasmanian Government’s better-than-expected economic outcome, combined with the University of Tasmania choosing to borrow direct from the market, our required bond issuance was lower than originally forecast for the reporting period, coming in at $1.1 billion.” (page 11)

What could have been UTAS’ motive in issuing its own Green Bond rather than using the services of TASCORP? Here are some of the factors that might have been considered:

• Size of borrowing – $350m – not an issue for TASCORP.

• Cost – it seems likely that $350m borrowed through TASCORP, which has a Moody’s Aa2 rating (the same as Moody’s rated UTAS), would have been cheaper than the Green Bond option. UTAS probably paid a substantial fee for Moody’s rating, as well as paying the Commonwealth Bank and NAB as joint lead managers for the Green Bond. It is also an open question whether UTAS could have secured a $350m loan through TASCORP at lower interest rates than through the Green Bond, potentially providing considerable savings.

• Flexibility – the terms under which UTAS has borrowed $350m can only be speculated on at this stage. However, it might well involve some additional cost, for example, to pay out the Green Bond loan early or even, possibly, to apply the funds to upgrade of the Sandy Bay campus site rather than a Hobart CBD move. It seems likely that borrowing though TASCORP would have provided more flexibility.

• Green credentials – of course, a Green Bond, burnishes UTAS’ green credentials in a way that borrowing through TASCORP could not.

• Due diligence – would TASCORP have undertaken a more exacting due diligence of UTAS’ borrowing of $350m than Moody’s? Given the issues I identified in the Moody’s rating assessment in my previous post, quite possibly.

• Government guarantee – money borrowed through TASCORP comes with a Tasmanian Government guarantee. Moody’s rating assessment suggests the Commonwealth would step into the breach if UTAS ran into problems with its proposed Hobart CBD move. Moody’s refers to “a high likelihood of extraordinary support from the Commonwealth”, a suggestion of an implicit Commonwealth guarantee that might surprise the Commonwealth.

A theory

By issuing the Green Bond, UTAS has been able to promote its greenness and sustainability, albeit on a flimsy platform (I repeat the section of my previous post querying the greenness of the Green Bond below for readers’ convenience).

It is also possible that UTAS issued the Green Bond so that it could say that it was locked into the $350m borrowing and therefore the proposed CBD move (not a good reason for persisting with a move lacking evidentiary support, but therefore just the sort of reason UTAS might use).

It may also have suited the Tasmanian Government for Moody’s to issue a credit rating assessment that suggested the Commonwealth, rather than the Tasmanian Government, would ‘pick up the tab’ if things went wrong for UTAS in the proposed Hobart CBD move. As I stated in my previous post, however, if UTAS were to run into financial problems with a Hobart CBD move, I do not believe that the Commonwealth would bail it out of what amounts to an ill-considered frolic; rather the costs would still fall on the Tasmanian Government and people.

Whatever the reasons for UTAS pursuing the Green Bond route, the Tasmanian people are owed an explanation for why it did so and full disclosure of the terms and conditions on which it has borrowed $350m.

Is the Green Bond really Green?

In its media release of 23 February 2022, UTAS stated:

“The Green Bond Framework commits the University to a minimum target reduction of 20% in the upfront carbon emissions embedded in construction of new campus buildings.“

While I stand ready to be corrected, I am assuming that this means that UTAS’ proposed Hobart CBD campus will produce 20% less carbon emissions than its current southern campus configuration, or something like this. If this is correct, the Green Bond has been depicted as green on a very narrow basis, not reflective of many, let alone all, of the environmental impacts of UTAS’ proposed activities.

I ask the following questions of UTAS:

• What would be the level of carbon emissions and other pollution produced in further building work (including renovations) in the Hobart CBD, including additional traffic involved in that work?

• What would be the level of carbon emissions and other pollution produced by the destruction of the Sandy Bay campus site and the development of a new suburb within such confined spaces, including additional traffic involved in the work, and any requirement to transport equipment into Tasmania?

• What would be the level of carbon emissions and other pollution produced by the inevitable gridlock (idling) and traffic delays that UTAS’ proposed CBD move would bring to the Hobart CBD, Churchill Avenue and Sandy Bay Road, which are all heavily congested at peak hours now.

• In particular, what would be the level of noxious gases and other substances released by the relocation of UTAS’ Sandy Bay to the Hobart CBD?

• What impact does UTAS anticipate having on green spaces and native habitat in redeveloping the Sandy Bay campus site?

• A number of the buildings on UTAS’ campus site have clear heritage values. What will UTAS do to preserve such buildings?

There is also the issue of the Green credentials of those taking up the bonds. To what extent has UTAS vetted the environmental record of those taking up the Green Bond and what can it tell us about them? The only party purchasing the Bond that has been identified to my knowledge is the Dai-ichi Life Insurance Company, which invested $103m in the Green Bond (see the company’s media release, which considers the greenness of the UTAS project in very limited terms).

I am sure others will add to this list of questions and provide informed comments.